Sometimes the government regulates the market to protect the interests of consumers.
Which kind of regulation would achieve this protection?
discouraging economies of scale that lead to lower costs
preventing mergers which result in high monopoly prices
reducing shop opening hours
reducing the range of products supplied to the market
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What causes market failure?
government provision of services
social costs equal private costs
the existence of external benefits
the existence of perfect competition
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A major highway has been built at a cost of US$175 million between Nairobi, Kenya and its suburbs. This reduces travel time and increases safety, but there are environmental problems for small enterprises along its route.
Who bears the external costs of this project?
the authorities who paid for the highway
the commuters who travel to work in Nairobi
the construction companies that built the highway
the small enterprises along the route
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Coal production in the UK has declined in recent years. One reason given for this is that the social cost of coal production is too high.
What best describes the social cost of coal production?
all the benefits of coal production minus all the costs of coal production
the cost of the environmental damage caused by coal production
the cost to the government of subsidising the coal industry
the private costs of coal production plus the external costs of coal production
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The government wants to reduce the consumption of cigarettes.
Which policy would be most likely to do this?
increasing a subsidy on cigarettes
increasing income tax
increasing interest rates
increasing the indirect tax on cigarettes
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What suggests that there is market failure?
high producer profits
high retail prices
lack of competition
low levels of investment
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In a private market system certain goods and services would not be available unless the government intervened.
What does this identify in a private market?
market distribution
market equilibrium
market failure
market structure
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China has built a new railway in Kenya from the capital, Nairobi, to the seaport of Mombasa. Kenya must repay the cost of the railway to China. Journey time has been reduced significantly but fares have increased and farmers have lost agricultural land along the new line.
Who bears the external costs of this operation?
China who built the new railway
farmers who have lost agricultural land
Kenya who must repay the cost to China
passengers who pay the higher fare
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The diagram shows the equilibrium market price PE and quantity QE for rice in a country.
Which government action could cause the market price for rice to become 
?
encouraging the export of rice from the country
imposing a maximum price below the market price for rice
providing a subsidy to farmers to produce more rice
reducing import tariffs on rice
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In the diagram, which level of subsidy per kilo would a government have to give to producers to encourage them to increase production from 20 kilos per week to 30 kilos per week?
US$3 per kilo
US$5 per kilo
US$8 per kilo
US$15 per kilo
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Which situation involving the building industry is most likely to be investigated by a government body set up to control restrictive practices?
a builder purchasing a plot of land for development of housing
groups of suppliers of building materials agreeing to fix prices
several builders bidding for the same contracts
several builders using different sources of supply
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A private sector firm is given a contract by the government to supply a country’s water. Which government directive will minimise the risk of market failure?
allow the firm to ration water rather than meet demand
ensure the firm’s supply includes all areas which are expensive to service
insist that the firm aims to maximise profits
instruct the firm to provide water only to those who can pay for it
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A government approved the construction of a new railway line connecting major cities. It would be built by a private company but be funded partly through taxation. It would create many jobs. People living on the route worried about the harm to their environment.
Which concepts are directly involved in this statement?
excess demand and public corporation
government subsidies and perfect competition
market system and income distribution
private benefit and external cost
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The diagram shows the impact of a government imposing an indirect tax on a good. The original demand curve is D1 and original supply curve is S1.
What is the total tax revenue gained by the government?
$1600
$3200
$4800
$5000
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The diagram shows the effect of the imposition of a tax on a product.
Which area represents the part of the tax paid by consumers of the product?
U + V
U + V + W
U + V + X + Y
U + X
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The diagram shows the demand curve D1 and supply curve S1 for a good. The government introduces a subsidy to encourage production.
What will be the total cost of the subsidy to the government?
$40
$50
$100
$150
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